Third Circuit Holds Ownership Percentage Exclusion Does Not Render Security Holder Derivative Coverage Illusory

The United States Court of Appeals for the Third Circuit, applying Virgin Islands law, has held that a D&O policy’s Ownership Percentage Exclusion barred coverage for a derivative suit brought by security holders who each owned more than five percent of the insured. Sunshine Shopping Ctr., Inc. v. Travelers Excess & Surplus Lines Co., 2026 WL 2824523 (3d Cir. Sept. 21, 2026). The court also held that applying the exclusion did not render the policy’s coverage for security holder derivative claims illusory.

The insured shopping center owner’s D&O policy provided specified coverage for “Security Holder Derivative Claims,” defined as “any Claim brought on behalf of, or in the name or right of [the company] by one or more security holders of [the company] in their capacity(ies) as such,” if “brought and maintained without the assistance, participation or solicitation of any member of the board of directors, officer, member of the board of managers, or ... equivalent thereof.” The